Investing.com -- Bank of America on Tuesday reinstated coverage of Adobe with an Underperform rating and a $190 price objective, arguing that generative AI is eroding the software maker’s competitive position even though its stock trades near the bottom of its historical valuation range.

Analysts led by Tal Liani set the price target based on 7 times the company’s projected 2027 enterprise value to free cash flow (EV/FCF), a discount to the roughly 9.7-times average for a broad group of software peers.

The stock closed at $218.07 on Monday, down 70% from its 2024 peak, and close to the lower end of its 52-week range.

The central question raised by BofA analysts is whether Adobe “can reaccelerate growth in the age of AI." Adoption of the company’s AI products has been noteworthy, but this has not yet translated into meaningful revenue gains, with AI-first annual recurring revenue (ARR) still representing less than 2% of Adobe’s total ARR.

The bank models total revenue growth slowing from 10.5% in 2025 to 8.8% in 2027, with "no clear path to near-term reacceleration."

The analysts suggest the risk from AI is not uniform across Adobe’s customer base. Casual and non-professional users are seen as most exposed, since "good enough" AI-generated output can substitute for paid subscriptions, while professional and enterprise customers are viewed as more resilient given their need for precision and integrated workflows.

Still, they note that "not all professional users need the full Adobe workflow," leaving single-app users and prosumers vulnerable to lower-cost, AI-native alternatives.

The team also flagged pressure on Adobe Stock, the company’s marketplace for images and video, which management said has declined for two consecutive quarters without providing a specific figure. This reflects a broader risk of cannibalization, as free or low-cost AI tools reduce demand for higher-margin legacy products and could weigh on seat expansion over time.

Adding to the uncertainty is the recent leadership change within Adobe, notably the simultaneous departures of CEO Shantanu Narayen, who has led Adobe since 2007, and CFO Dan Durn. The dual transition "heightens risk around strategy, continuity, and leadership stability" as the company navigates its shift toward AI, the analysts warned.

Adobe’s shares at current levels are inexpensive relative to peers, analysts acknowledged, but said that alone is not enough to justify a more positive stance.

The bank expects margins and free cash flow generation to remain strong, with free cash flow margin near 39% by 2028, but sees "limited multiple expansion without clear evidence of AI monetization and growth acceleration."